Shorting on downticks (3/16/05)

Discussion in 'Prop Firms' started by heavy, Mar 16, 2005.

  1. heavy


    How do diffierent firms allow you to short on downticks on listed stocks? I know about Essex Radez (yes, they [rarely] fill on an uptick, to the tape), and I know a few firms allow "conversions" (long stock, short calls, & long puts), but I've heard there are a few other methods out there.
    However, when I called a few firms in the NYC area, the people I spoke to were clueless, for the most part.
  2. traderob


    Could you explain how conversions work..
  3. heavy


    Conversions? You send a single order to:
    Buy stock, Sell calls, & Buy puts. The options typically have the same strike and expiration, so it's market-nuetral, but you are technically "long", as per the SEC. (Yes, I've spoken to them.)
    So, you can trade this stock as though you are long, or "hit bids" in a down market.
    This is just a quick & dirty explanation, though. I'm sure, given time, someone could do a much better job.
  4. stormins


    They are called "Bullets" and it is my understanding they are no longer allowed
  5. Bullets were a different product. What he described above is legal, though certainly only by the letter and not the spirit of the law.

    Apparently sometime in... May? the NYSE is ditching the uptick rule on a big chunk of stocks.
  6. alanm


  7. heavy


    I actually spoke to 2 of the lawyers that wrote the rule (was that back in Oct 03, when bullets became illegal?). One wasn't forthcoming, but the other gave me all sorts of detail.
    He said that conversions are not with the "spirit of the law", because the obvious intent is still to short on downticks, but here are some of the reasons they "won't waste time going after someone using conversions":
    Conversions are "real", but bullets were merely a spreadsheet entry.
    It takes actual time and money, and a risk (albeit, very little) to get a conversion, but with bullets, they were risk-free, instantaneous, and had a fixed price.
    He was basically pissed that the bullet companies were printing money, with no risk. That law was more for them, than for daytraders.
  8. alanm


    My point was that they are actually not within the letter of the law, assuming that the "interpretation letters" are considered law.

    Whether they choose to enforce it or not is, of course, a different issue.
  9. If u trade options in addtion to just hitting downticks, u could make an asertion that u are doing parity arb so it might be a safe harbor.
  10. heavy


    I didn't want to make this a "are conversions legal" thread. I figure, if my firm allows them, and having spoken with the SEC, and gotten their take, I'm assuming they are ok to use. At least, that's what I'm sticking with, until I hear different.

    I was just wondering what products/services any prop firms had to get short in down markets.
    Based on the lack of replies, I figure people either don't know, don't care (or, don't want to give away any secrets, hehe).
    #10     Mar 17, 2005